Oil and Africa

March 25th, 2007 at 11:33 pm

[Editor’s note: The following is an excerpt from Adam Robert’s new book The Wonga Coup: Guns, Thugs and a Ruthless Determination to Create Mayhem in an Oil-Rich Corner of Africa.]

Africa, overall, has a handy supply of oil. Its known reserves are small compared with the Middle East: it may have 100 billion barrels of crude, roughly the same as in Kuwait alone. But the continent is poorly explored. As new technology is used to study its land and seabed, known reserves have risen fast. Some western companies hope for big discoveries in dry spots like Madagascar and in parts of east Africa. But they are not only looking for oil. Africa has a useful supply of natural gas. Nigeria alone may have 17 million cubic metres (200 trillion cubic feet) of gas which is barely exploited. Turned into Liquefied Natural Gas (LNG) by ‘deep cooling’, it is of a quality that suits American consumers. ‘You can plug west African gas direct into the North American gas pipeline system,’ says an excited hydrocarbon expert. Already large quantities of African gas are being pumped north to Europe. Since poor African countries consume little energy, they are also ready to export almost everything pumped out of the rock. Experts talk of a new ‘scramble for Africa’, especially for mineral and hydrocarbon resources. Oil firms from rich countries have earmarked hundreds of billions of dollars for ‘upstream’ African development (that is, finding and pumping out the oil and gas) in the next couple of decades.

The continent has one especially valuable area. The broader west African region is fast increasing output: the most optimistic estimates indicate it could export 6 million barrels of oil a day by 2010. This includes one area described by white labcoat-wearing experts, in technical jargon, as ‘one of the oiliest patches in the world’. That is, the armpit of the continent, in the Gulf of Guinea in the middle of which is Equatorial Guinea. For years all hoped for a big oil discovery. Spanish prospectors in the 1980s found nothing. Then a tiny Texan outfit, Walter International, struck lucky in 1991. The bonanza began, formally, in October 1996 with a solemn act of inauguration at the first commercial oil field, presided over by Obiang [President of Equatorial Guinea] and the executive vice-president of Mobil Corp, Paul Hoenmans. A decade later the country exports some 350,000 barrels of oil a day. At a rate of $50 a barrel, that is worth over $6 billion each year. No one is sure what reserves exist, but there may be another billion barrels of oil to come, plus 4 trillion cubic feet of gas, from Equatorial Guinea.

The country has a tiny population – at a squeeze you could fit everybody into a large football stadium – and lots of oil. Per person, Equatorial Guinea pumps more oil than Saudi Arabia. That should mean good times for all. In 2002 Obiang promised just that: ‘Like the Scriptures say when the Pharaoh of Egypt had a dream of lean cows and fat cows, we have passed the time of lean cows that represent hunger, and we are now in the time of fat cows which is prosperity.’ Instead, a few at the top take most of the wealth, which – though bad news for most Equatorial Guineans – makes it all the more tempting for others to seize power.

To give an idea what sort of wealth is at stake, consider how Nigeria’s leaders have prospered next door. Since 1965, when the black stuff began to flow seriously, Nigeria has earned over $350 billion. That should have helped develop the rest of the economy. Instead, much of the oil revenue has gone straight into the pockets and bank accounts of corrupt civilian and military leaders. Today Nigeria pumps nearly 2 million barrels of oil a day, and is the largest producer in sub Saharan Africa, though its booming population remains one of the poorest anywhere. It is a similar story in Angola, the next largest producer, with roughly half that annual output. Angola’s leaders long plundered at least a billion dollars a year from oil revenues, says the International Monetary Fund. Tiny Equatorial Guinea is a more recent player: the oil began to flow in serious quantities only at the end of the 1990s. But already it is the third largest exporter, pumping out nearly a barrel of oil for each of its citizens, every day. ‘Equatorial Guinea is run like a family business. It is a micro state, a flea in the armpit of Africa,’ explains an African oil consultant. ‘But this flea is now getting dimensions. They are aiming for a small Emirates-style country, with a king and his family running it.’

It is astonishingly venal. Obiang is evidently corrupt. Fond of straw hats and playing billiards, his taste is otherwise for the excessively expensive. In 2004 he bought a Boeing 737-700, one of six personal planes, for $55 million. This one has a kingsize bed, a state-of-the-art satellite communication centre and – the classic despot touch – a large bathroom with gold-plated fittings and door handles.

Apologists cannot excuse Obiang as a poorly educated man, or as someone with dreadful experience of colonial rule. He studied in the United States at Cranbrook Academy of Art, Bloomfield Hills, Michigan (although Cranbrook would probably rather forget their notorious alumnus). Nor is there an excuse for his eldest son and likely successor, Teodorin. A playboy, Teodorin spent years dabbling as a rap music entrepreneur in California, and then became a government minister. He has a fleet of sports cars in Paris, where he lives in a luxury hotel for much of the year. He once invited French journalists to watch him buy thirty tailored suits and race around the French capital in one of his Lamborghinis. In June 2005 Obiang blithely told an American journalist that ‘one hundred per cent of the oil revenues are being used for programs for the people’. The next month Teodorin bought three luxury cars – another Lamborghini and two Bentleys – to park at his $4-million holiday home in Cape Town. He spent roughly a third of Equatorial Guinea’s $13-million-odd annual education budget on a holiday home and some cars.

The family also bought mansions in the United States and stocked other international bank accounts. Land and many businesses became the personal property of the ruling family: these were then leased out, or used to generate contracts, for suspiciously large private payments from American and other oil companies. Almost anybody who has spent time in the country has concluded that graft, from the president down, is deeply embedded. In 2005, Transparency International, the anti-corruption watchdog, said businessmen and other observers found only one African country, Chad, more corrupt. Tropical Gangsters – the title of an excellent book on the country by Robert Klitgaard – nicely describes Obiang’s ruling clique. Aid groups like Médecins Sans Frontières, and donor organisations such the World Bank, have long refused to work there because of graft.

Supply is assured. Nor is there any risk that demand will dry up. Chinese buyers are frantic in their search for African oil. They have secured long-term contracts for oil in Angola, Gabon, Sudan and elsewhere. They are buying a rapidly rising share of Equatorial Guinea’s output, and the leaders of the two countries are close allies. (While few European countries have an embassy in Malabo, China has a large complex there.) As important, the United States, whose oil firms dominate production in Equatorial Guinea, is increasingly keen on African oil and gas. Whereas the United States was all but self-sufficient in hydrocarbons half a century ago, it depends ever more on imports. But too much comes from the ever-troubled Middle East. Lessening dependence on one region by getting more oil from relatively nearby west Africa (and elsewhere) is a smart policy. It should mean a more secure supply of the black stuff. It also means no shortage of buyers for Equatorial Guinea’s oil.

Thus, senior Africa officials in the United States administration talk of Africa, especially the Gulf of Guinea, providing as much as a quarter of all American oil imports within a couple of decades. African supplies of Liquefied Natural Gas will also help to meet rising American demand. Marathon Oil, an American firm in Equatorial Guinea, has invested billions of dollars developing an LNG plant to export 60 million tonnes of gas directly to the south of the United States. A British firm, BP, will ship the refrigerated gas over the Atlantic. That contract alone is thought to be worth $15 billion over some seventeen years. A Marathon executive told an oil conference in Cape Town in 2004 that Europe and North America are increasingly dependent on foreign supplies of gas. The two regions will soon need combined imports of 21 trillion cubic feet of gas a year. West Africa’s proximity to both markets makes it an important supplier, and Equatorial Guinea is bidding to become a hub for the region’s gas exporters.

Obiang might at least get credit for overseeing the oil boom in his country. For several years Equatorial Guinea’s economy grew faster than any other country’s – and much faster than the African average. But this hid a big problem. It only grew fast because it was so wretchedly poor in the first place. The oil industry developed twenty years later than in the rest of the region, largely because the government was incompetent. Worse, the terms struck with the oil firms were dreadfully skewed against Equatorial Guinea. At the beginning of the new century Total, a French oil firm, paid Nigeria $8 for each barrel of oil pumped from a field straddling the sea border with Equatorial Guinea. Exxon, exploiting the same field but from the Equatorial Guinean side, paid a mere $3 a barrel. Unsurprisingly, Exxon said that field was one of the most profitable in the world. Exxon enjoyed terms of business, at least in the early years, that were exceedingly generous. Yet the oil firm says it took eight years to recover costs in Equatorial Guinea’s large Zafira field, a timespan that looks suspiciously long to some oil experts, given a rising oil price and rapidly rising output.

Though the government had earlier gathered taxes and royalties on oil, it was only in 2004 that it began to get its own direct (and more valuable) share of production. The long delay while Exxon recovered its initial costs ended that year, marking a moment when oil funds would pour especially fast into government coffers. If Equatorial Guinea looked promising to a mercenary as the first oil flowed, by 2004 it seemed to burst with opportunity. You could almost hear exiled politicians and hired guns licking their lips.

you say that cause government incompetent the oil industry developed twenty years later? that doesn´t fix with your first Walter International “struck lucky”…. more over “exploiting the same field but from the Ecuatorial Guinean side” seems to me since the late 80´s that was nigerian political pressure the cause of that late devolopment, further Spanish oil companys doesn´t have the political muscle to avoid that pressure. isn´t that way?